Microsoft Cools Hotmail Features

Love reaching your Hotmail account from your Outlook inbox? Soon you'll have to pay for the privilege of doing it.

In a bid to rein in spammers, software giant
Microsoft
is planning to turn off a feature that allows users of Outlook and Outlook Express to read messages from their free accounts on MSN Hotmail, the world's most popular Web mail service. The decision will also affect Microsoft's Entourage e-mail software for
Apple Computer
's
Macintosh computers.

The feature will still work for those who have paid accounts on the Hotmail service, and users will continue to be able to access their e-mail for free from the Hotmail Web site. Microsoft says that spammers have been abusing the Outlook feature and creating false Hotmail accounts using an automated process from which they can send huge batches of unwanted commercial messages.

"It's interesting because they are closing a hole that's been well known for more than year," says analyst Matt Rosoff with Directions on Microsoft, in Redmond, Wash. "They're trying to make Hotmail less appealing to spammers."

Microsoft will continue to support Outlook access for users of its paid Hotmail service. It currently offers two gigabytes of mail storage for $20 per year, and $100 per year for more advanced access to Hotmail via MSN Premium. It's also currently moving its base of free users from 2 megabytes of storage to 250 megabytes.

Rosoff says the impact on Microsoft will be minimal from a financial standpoint. Only 5% to 10% of Hotmail's free users are thought to have used the Outlook feature regularly. Hotmail is thought to have between 170 million and 180 million active users.

But the change might create a competitive opening for rivals
Google
and
Yahoo
, which both operate popular Web mail services. Hotmail is still the leader of the pack, with a 33% percent share of the market, according to research outfit Radicati Group of Palo Alto, Calif.

Yahoo is nipping at Hotmail's heels with 30%. The firm estimates there are between 300 million and 400 million active Web mail accounts in use globally. It offers two gigabytes of storage for $20 per year and allows its users to access their mail with external e-mail programs via so-called POP3 protocol.

Google's service, which launched in April and unleashed an arms race to boost storage (see "Gmail Vs. MSN Hotmail Vs. Yahoo! Mail"), is still not out of its public Beta-testing phase, but has captured a 4% market share, which is sufficient to make it the third most popular Web mail service on the Internet, says Radicati analyst Marcel Nienhuis. The remaining 33% of the market has been carved up by others in the space including Lycos, a unit of
TerraLycos
,
Sina.com
in China and Excite.com, a unit of
AskJeeves
.

Nienhuis says Microsoft has never disclosed whether the Hotmail service is profitable, but says it has over the last few years paid greater attention to using it as an advertising vehicle rather than relying on subscription revenue. It has also never disclosed how many paid users it has compared to free users.

"Running a service like this is a lot more expensive than simply running a static Web site," he says. "But with e-mail, at least you have a way to more or less guarantee traffic on a daily basis."